CA ANZ provides more feedback on proposed standard-setting merger

Last week, CA ANZ and CPA Australia submitted joint feedback to the federal government’s proposed restructuring of standard-setting bodies, which warned the legislation could undermine integrity and independence in standard-setting.

The reforms would see Australia’s three existing bodies, the Australian Accounting Standards Board (AASB), Auditing and Assurance Standards Board (AUSB) and Financial Reporting Council (FRC), amalgamated into a new entity called External Reporting Australia (ERA).

On Monday (1 December), CA ANZ released fresh details regarding its proposed changes to the draft legislation and specific concerns about the merger’s impacts on independence and integrity.

In its submission, CA ANZ noted that the draft legislation stipulated that ERA council appointees needed to be “independent from Australian auditors.” The legislation’s emphasis on auditors could lead to the exclusion of “necessary experience” in audit, and failed to establish a broader principle of independence, the industry body said.

CA ANZ warned that other stakeholder groups, including preparers, directors and regulators, could have interests in standard-setting, and that ignoring these groups in the legislation could lead to an unbalanced composition in the ERA council.

The industry body also called for stronger wording in the legislation to ensure public consultation was conducted when new accounting or auditing standards were drafted.

The draft legislation stipulates that the ERA “may” distribute draft international accounting and auditing standards for public consultation when modifications are made. CA ANZ said consultation should be mandatory, and that the wording “may” should be updated to “shall” or “must.”

“Public consultation is an essential element of standard-setting activities, to ensure development of robust standards that meet market needs,” the submission read.

CA ANZ also raised issues with the draft legislation’s inclusion of ministerial powers to interpret standards, warning that it could allow the minister to exert undue influence over ERA and the standard-setting process.

“The ability for the Minister to interpret standards undermines the integrity and independence of External Reporting Australia and the standard-setting boards and has the potential for the Minister to exert undue influence over External Reporting Australia and the standard-setting process,” CA ANZ warned in its submission.

It added that the Minister’s legislated power to add functions of ERA risked “bypassing due process” and “determining potentially significant further functions or changes without adequate consultation.”

CA ANZ suggested that additional functions of ERA should be determined through a separate consultation process, instead of being left up to ministerial discretion.

The industry body also urged the government to amend a section of the legislation that enabled the governing council to make decisions outside of public meetings.

The draft stipulated that the council was to have made a decision if “without meeting, the majority of Council members entitled to vote on the proposed decision indicate agreement with the decision.”

CA ANZ recommended that the legislation should spell out more clearly when decisions could be made outside of meetings.

“Unless matters discussed by the Governing Council outside formal meetings are procedural or minor matters, all other matters should be tabled in formal public meetings and accordingly, [the legislation] should be amended to reflect this,” the submission read.

Overall, the accounting bodies welcomed the proposal to merge the standard-setting bodies, but warned that existing characteristics of the draft legislation could introduce issues related to governance and independence.

CPA Australia said the new model would provide welcome flexibility to the system, but warned that this should not come at the expense of accountability and integrity.

“Independence and transparency are fundamental to credible standard-setting, and while we welcome the flexibility that comes with the new model, every effort must be made to ensure that accountability and integrity are evidenced at all times,” Subramanian said.